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Investing
Have we bottomed?
November 10, 2008
Clifford Bennett, Chief Economist, Sonray Capital Markets
The worst of the credit crunch is behind us, the worst of the economic down-turn is ahead of us, and it is only a question of whether the worst of the economic down-turn has already been fully priced into equity markets.
I believe a global recession or worse is already priced, which means equity markets should have already bottomed. We are expecting a long period of consolidation base forming at current levels however for perhaps 6 to 9 months before any major up-trend really establishes itself.
The current drop in the Dow Jones and other equity markets is perceived here as part of this long struggling bottoming period, expected to be near, but stay above, the October lows.
Our view remains that this will be a mainly Western economy recession, and not global in that China will continue to power on as will many other emerging economies.
This will be the surprise to many who in the past have experienced that when the US slows, so does the whole world. The internal growth engine of China, the population flow toward consumerism on the east coast, is such that when combined with rate reductions and other stimulative measures, should ensure GDP growth is maintained above 6.5% over the next year, and may even achieve 8.5%.
At that rate of growth countries such as Australia will continue to enjoy the benefits of a strong China. In fact China remaining stable economically will allow the US and other western economies to survive this down-turn better than might otherwise have been the case.
Global markets are doing what they had become use to, that is a sharp fall in the Dow Jones causes investors to cut back on all their positions in all markets. This has markedly been seen in commodity markets, and current lows in Oil and Gold may still be surpassed before the close of trading for the weekend.
What is interesting however is that even as the recently typical sell off of currencies/buying of US dollars occurs, the US dollar still remains far below its recent highs. This may suggest the market place is beginning to recognise that rather than being the first economy to recover from this downturn, the US may in fact suffer the deepest and longest recession of any economy.
This time it may be a case of first into recession, and last out, for the US. Therefore a sharp sell-off of the US dollar may eventuate early next week.
Clifford Bennett, Chief Economist, Sonray Capital Markets.
Disclaimer: This recommendation has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided by Sonray Capital Markets Pty Ltd ABN 18 104 482 993, AFSL 231151. These recommendations are current as at the date of issue. Past performance is no guarantee or reliable indication of future results. Trading in derivatives may involve a high degree of risk and significant loss, and is appropriate only for persons who can assume risk of loss in excess of funds deposited. This recommendation is of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. Although the information in this recommendation has been obtained from sources considered and believed to be both reliable and accurate no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein.
More articles from this edition of CompareShares:
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Commodities: Watch out for the rally
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Expert Panel: Have we bottomed?
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CFDs: Top five CFD stocks for the week
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Outlook: Investment boom days numbered
Credit Crisis: China takes steps to stimulate economy
Global Crisis: G20 vows action on crisis
Companies: NAB plans to raise $2b with share sale
Govt guarantee: Bank guarantee goes too far
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